Financing

Howard Schultz has some thoughts on Starbucks' big earnings miss

The former CEO of the coffee shop giant, who handpicked the current chief executive, said the company’s problems “begin at home.” And he urged the chain to overhaul its mobile ordering platform.
Howard Schultz
Howard Schultz says Starbucks should improve the experience on its mobile app. | Photo courtesy of Starbucks.

Howard Schultz worked furiously on a plan to fix Starbucks’ domestic operations while also choosing his successor and then, just more than a year ago, stepped aside from any formal role at the company with which he is synonymous.

But that doesn’t mean he isn’t around. And Starbucks’ most recent earnings miss, in which it dramatically lowered sales projections, was apparently enough to bring him out of the shadows again.

In a LinkedIn post published on Sunday, Schultz said the problems begin “at home.”

“Over the past five days, I have been asked by people inside and outside the company for my thoughts on what should be done,” he wrote. “I have emphasized that the company’s fix needs to begin at home: U.S. operations are the primary reason for the company’s fall from grace."

“The stores require a maniacal focus on the customer experience, through the eyes of a merchant,” he added. “The answer does not lie in data, but in the stores.”

Starbucks reported one of the most disappointing quarters in company history last week. Same-store sales declined 3% in the company’s fiscal second quarter, featuring a 7% decline in transactions.

That came despite a strong promotion in the quarter and led Starbucks to slash its expectations for sales this year. It sent the stock price plunging and ended CEO Laxman Narasimhan’s honeymoon period.

Narasimhan was hired 19 months ago following an extensive search and he spent nearly half a year training under Schultz’s tutelage before he took over as permanent CEO.

“I, too, experienced some quarters of financial disappointment in my four-plus decades of leading Starbucks,” Schultz said. “Ask any public-company CEO and they will tell you that ‘a miss’ is virtually inevitable, even at the best-managed, fastest-growing firms.”

The key, he said, is what happens next. “At any company that misses badly, there must be contrition and renewed focus and discipline on the core,” he wrote. “Own the shortcoming without the slightest semblance of an excuse.”

Starbucks had some excuses: Weather was a problem in the quarter. So was the economy, which may be keeping some customers away from its increasingly expensive beverages. “Throughout the quarter, brand perception of ‘value for what I get’ on average remained strong, and our pricing decisions have been measured,” Narasimhan said last week. “But in this environment, many customers have been more exacting about where and how they choose to spend their money, particularly with stimulus savings mostly spent.”

“We need to be able to reach and communicate with our customers in a way that demonstrates our value, particularly through Starbucks Rewards and the Starbucks app,” he added.

But on the call, Narasimhan said there were operations issues at the company that needed fixing. For instance, the company had an order incompletion rate in the “mid-teens” during peak morning periods, as customers leave items in their cart on the company’s app, citing long wait times or product unavailability.

This, after two years of effort to improve throughput inside Starbucks shops.

Schultz said that the company needs to improve the experience for those mobile order customers. “One of [senior leaders’] first actions should be to reinvent the mobile ordering and payment platform—which Starbucks pioneered—to once again make it the uplifting experience it was designed to be,” he said.

He urged the company to overhaul its go-to-market strategy “with coffee-forward innovation that inspired partners and creates differentiation in the marketplace, reinforcing the company’s premium position.”

“There are no quick fixes,” he added. “But the path forward should be what has guided the company over decades of financial success: Inspire your people, exceed the expectations of your customers, and let culture and servant leadership lead the way.”

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